Often times when I meet a business owner for the first time, they will ask me what his business is worth. Fair question. Like any accountant or lawyer will answer, it depends (am I the only one that hates that answer?) Ultimately the market will tell you what it's worth, but we'll do some work to find a range. However, there are some things you can start doing now that will help you acquire the upper range of that dollar amount if you start early enough before selling.
The first thing you have to do is step back from the business and look at it from a buyers perspective (this is very hard to do for many). If you were a buyer, how much would you spend to buy your business?
Tools for Valuation
Depending on the size of your business, HPX Advisors can perform an opinion of value on your business based on the market. If your business is multifaceted and doing over $2M in revenue, it's important to have a formal valuation performed by a certified business appraiser. This can be done for approximately $1,900. The report generated is valuable not only to you but to any perspective buyer in that it minimizes the argument of value. Emotion is removed by having a third party professional appraiser We can make recommendations of companies that we or there are numerous nationally recognized associations of certified buses appraisers such as American Society of Appraisers, National Association of Certified Valuators and Analysts, Insitute of Business Appraisers, and International Society of Business Appraisers.
Types of Valuations
In your report, you should receive three types of valuation models. When choosing the right approach is best for you, one must consider the nature and size of the business.
Income Approach The income approach is based on the company's ability to generate economic benefit, such as net cash flow. Under this approach, sellers often use the discounted cash flow method, capitalization of earnings method and multiple of discretionary earnings method.
Asset ApproachThe asset approach is a common approach to valuing a business. The goal is this approach is to find the net asset value. To find business value, you'll need to find the fair market value of assets less liabilities. Under this approach, sellers often use the asset accumulation method and capitalized excess earnings method.
Market Approach Market approach to valuing a business books at the marketplace to determine value. This may include analyzing historical sales, industry trends, and more. To calculate the market value, business brokers and professional valuation appraisers have numerous databases and records. Under this approach, sellers often use the comparative transaction method.
The best advise I can offer is don't wait till you're ready to leave the business to think about having a valuation performed. If there's a gap between what it's worth and what you need to live on after the sale, you'll need to time to make changes in the company to increase value to which we can help. We are a Certified Value Builder Advisor and can guarantee an increase in your valuation by up to 71%. Check out our website to learn more.